NetSpend 2013 Annual Report Download - page 75

combining the operations of TSYS and CPAY. All of
the goodwill is tax deductible.
The following table summarizes the consideration
paid for acquisitions and the preliminary recognized
amounts of identifiable assets acquired and liabilities
assumed during the year ended December 31, 2012.
(in thousands)
Cash and restricted cash .............. $ 3,003
Accounts receivable .................. 4,092
Other assets ........................ 12,522
Identifiable intangible assets ........... 76,600
Other liabilities ...................... (30,558)
Noncontrolling interest in acquired
entity ............................ (38,000)
Goodwill ........................... 162,090
Total consideration ................. $189,749
The fair value of accounts receivable, accounts
payable, accrued compensation, and other liabilities
approximates the carrying amount of those assets
and liabilities at the acquisition date. The fair value of
accounts receivable due under agreements with
customers is $4.1 million. The gross amount due
under the agreements is $4.8 million, of which
approximately $688,000 is expected to be
uncollectible.
Of the $123.7 million in consideration paid for
ProPay, $12.5 million has been placed in escrow for a
period of 18 months to secure certain claims that may
be brought against the escrowed consideration by
TSYS pursuant to the merger agreement.
Consideration is contingent and may be returned to
the Company pursuant to indemnification
commitments made by the shareholders which
formerly owned ProPay related to a breach of the
representations and warranties made in the merger
agreement. Such indemnification commitments are
recognized as a possible receivable and measured at
fair value. Based upon the probability of various
possible outcomes related to the indemnification
commitments, TSYS has determined that the fair
value of any receivable asset would be immaterial.
The maximum amount of contingent consideration
returnable to the Company related to certain
indemnification commitments made by the Seller is
$12.5 million. The maximum amount of contingent
consideration returnable to the Company related to
fundamental representations and warranties made by
the Seller is unlimited.
Of the $66 million in consideration paid for CPAY,
$3.3 million has been placed in escrow for a period of
21 months to secure certain claims that may be
brought against the escrowed consideration by TSYS
pursuant to the Investment Agreement.
Consideration is contingent and may be returned to
the Company pursuant to indemnification
commitments made by the company which formerly
owned 100% of Central Payment (Seller) related to,
among other things, a breach of the representations
and warranties made in the Investment Agreement,
and losses arising out of any of the Excluded
Liabilities as defined in the Investment Agreement.
Such indemnification commitments are recognized as
a possible asset receivable and measured at fair
value. Based upon the probability of various possible
outcomes related to the indemnification
commitments, TSYS has determined that the fair
value of any receivable asset would be immaterial.
The maximum amount of contingent consideration
returnable to the Company related to certain
indemnification commitments made by the Seller is
$9.9 million. The maximum amount of contingent
consideration returnable to the Company related to
fundamental representations and warranties made by
the Seller is unlimited.
Identifiable intangible assets acquired in the
acquisitions had no significant estimated residual
value. These intangible assets are being amortized
over their estimated useful lives of 2 to 10 years
based on the pattern of expected future economic
benefit, which approximates a straight-line basis over
the useful lives of the assets. The fair value of the
acquired identifiable intangible assets of $76.6
million was estimated using the income approach
(discounted cash flow and relief from royalty
methods) and cost approach. The fair values and
useful lives of the identified intangible assets were
primarily determined using forecasted cash flows,
which included estimates for certain assumptions
such as revenues, expenses, attrition rates, and
royalty rates. The estimated fair value of identifiable
intangible assets acquired in the acquisitions and the
related estimated weighted average useful lives are
as follows:
Fair Value
(in millions)
Weighted Average
Useful Lives
(in years)
Customer
relationships ......... $59.5 8.6
Covenants-not-to-
compete ............ 2.9 2.8
Current technology ..... 13.0 5
Trade name ........... 1.2 2
Total acquired
identifiable
intangible assets . . . $76.6 7.7
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